Wisdom of Rich Dad

One of the key lessons we learn in life is that it is important to save. There is a big difference though, between what we learn and what we do and many people find saving difficult.

Those people who feel guilty about not saving will be interested in a concept being promoted by Robert Kiyosaki, author of Rich Dad, Poor Dad, who suggests that savers are losers. Before all non-savers get too comfortable with that proposition, his point is not that everyone should spend rather than save. Saving implies putting money away on a regular basis into a bank account where it will earn interest and slowly increase in value with compound interest.

There are three reasons why you could argue that people who save are losers.

• Firstly, the return on your savings is reduced because you pay tax on the interest earned.
• Secondly, over time, the effect of inflation will reduce the purchasing power of your money. In other words, if you save $100 and choose to spend it ten years from now, you will not be able to buy as much with your money as you can today.
• Thirdly, bank deposits offer a low rate of return when compared with other investments. That is because bank deposits are seen to be less risky than other investments.

The point made by Kiyosaki is that if you really want to get ahead financially, you are better to invest rather than save.

Investing in growth assets such as property and shares or investing in a business of your own should give you better protection against tax and inflation, and a higher return over the long term.

In my view, the best approach is to do a little of everything; invest for a good return, save for security and spend to enjoy life.

I would like to announce my latest web property – Real Estate Investment Game.

The game is about buying and selling virtual property. You are presented with virtual apartments in different looks, along with various data, including market value and tenancy count. You can also see who owns the apartments and you can decide whether to buy the properties or not. To increase your apartments’ attractiveness, you can upgrade them with various upgrades, such as apartments’ maintenance to keep yours squeaky clean (and have better market value.)

You can play with either real money or play money.

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Robert Kiyosaki likes real estate investing is because real estate touches each part of his financial statement.

Starting with his best-selling book Rich Dad Poor Dad and continued in many of his subsequent books, Robert explains how real estate gives cash flow to his income statement and on the expense side of the income statement he’s able to deduct the property’s depreciation as an expense.

When seen from the balance sheet, he’s able to gain appreciation on the asset side and the leverage provided by the bank rounds out the liability side of the balance sheet.

Through a property management company you can also access the four parts of the financial statement.  Here’s how:

Balance Sheet:  Asset-side

Every property producing monthly rent is an asset.  It is possible to sell the rights to manage the property to another property manager for a lump sum of money.

Balance Sheet:  Liability-side

Robert uses his banker’s money aka leverage in order to purchase a large property with only a small percentage as a down payment.  When the property goes up in value he is able to keep the entire appreciation amount without having to share it with the bank.  He can use leverage and still get the benefit of 100% of the appreciation.
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Robert Kiyosaki’s Cashflow 101 game is a great learning tool. The following hints have been compiled so that you can get the most value you possibly can from the game. These tips apply to real life as well, so keep your heads up.

1. Don’t cheat. The purpose of the game Cashflow 101 is for you to learn so if you cheat you learn to cheat. Why make money illegally when it is so easy to do it legally?

2. Read the rules. You should especially read the three-hour millionaire piece on the back of the Cashflow 101 rulebook. See also Robert Kiyosaki’s Hot Tips page that comes with the game. Know the legal side of things and listen to the advice of professionals.

3. Find learners to play it with. Find people who want to learn more about investing and money to play with. It is wholly different to play with people with the same money and financial interests, than family and friends who play with you because no one else would. Some action is better than none, but better yet is someone motivated to the action for his/her own personal reasons.

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When I start talking to people about building a passive income business by following the teachings of financial freedom guru Robert Kiyosaki, I immediately hear about people’s plans for buying real estate.

Anyone who has read the book Rich Dad, Poor Dad thinks that Robert Kiyosaki is all about investing real estate and buying rental or commercial property in order to achieve the financial freedom of their dreams. So, they instantly start putting all their money into real estate.

Reality check: That’s not book’s message. I try to listen patiently (after all I also believe that real estate can be a great investment vehicle), but the reality is you need a solid plan to achieve financial freedom, not a one off strategy.

Authors Robert Allen, Robert Kiyosaki, David Bach, and many, many talk about building multiple streams of passive income, that means having more than one investment vehicle, and making sure all those vehicles deliver passive income.

For beginners: passive income is income that comes in day in day out without you having to work to get it. Put simply, you are not trading hours for dollars. A true passive income business is one that if you were to leave it alone for a period of time, such as a year, you could return and find it more profitable (or at least generating the same level of income) as before you left. Passive income investments are the true path to financial freedom.

So what is the principle that Rich Dad truly talks about. He calls it the Power Investing Principle.

1 – Start a part-time business for the cashflow & tax advantages.

2 – When the market is right invest in real estate. (Now is not the time.)

3 – Invest your excess cash from the real estate in paper assets.

Unfortunately, a lot of people jump into step 2, real estate, without a lot of background knowledge about how to make that investment a lucrative one.

Here’s a clue, the property needs to generate passive income (that means it should be putting money into your pocket not taking money out). Capital gains (betting on an increase in value) should be a bonus not your sole reason for buying.

One of the first steps in building a solid passive income plan is to identify how you plan to generate passive income. The plan should include a number of sources including businesses, real estate and paper assets. The reason for this is to create a stable platform on which to build financial freedom you need all the elements.

Now, lets go back to the power investing formula and look at number 1: Build a business. Why do you want to build a business first? Simple: businesses provide the financial backing (cashflow) to support real estate investing. Makes sense right?

While there are only three steps in the power investing principle, you need to take the time to understand the systems behind each one. For example, master the business building system then move on to the system for residential real estate investing.

Taking it step by step will lead to prosperity and reduce your risks along the way.

Robert Kiyosaki talks about:

• The loser’s mentality.
• “If you can’t control your emotions, you can’t control your money.”
• Everybody wants to go to heaven, but nobody wants to die!
• “Why doesn’t our school system teach us about money in school?”
• “You know why they call brokers, brokers?”
• Understanding the 80/20 rule – Kiyosaki style.
• What the church will tell you.
• Are you in the right relationship to be wealthy?